For too long, the focus of Blockchain technologies have been on cryptocurrencies, when it can be applied to a range of functional areas. It doesn’t matter what can be sent across the Blockchain. Bitcoins are pieces of data, so why not send a file, a report, a smart contract or even a filing to a regulator?
Further explanations of the how of Blockchain technologies work and can impact the finance sector can be found in this article based on infographics.*
While interest in Blockchain across financial services has been high, most of the focus has been around banking, payments and settlement. Fund managers have largely adopted a “wait and see” approach. We believe this to be a mistake.
Blockchain has the potential to revolutionize many areas of the funds industry including fund regulation, record-keeping, AML/KYC, Operational Due Diligence (ODD) and risk management. Blockchain can be used to manage all of these fund processes as a single, secure, immutabile record of activity. This will provide huge benefits to fund managers in terms of cost, security and operational efficiency.
That is not to say that Blockchain technologies are universally welcomed.
Chris Skinner, in his excellent blog about all things related to technology and finance, recently posted about anyone who dismisses Blockchain as a fad as being a denialist. Skinner, who has wrote best selling books such as Digital Bank and ValueWeb goes on to argue that:
“Bitcoin detractors have several characteristics in common.
- They do not develop software
- They do not understand or use cryptography
- They do not have the language to describe cryptography
- They have a quasi religious belief in the necessity of the State
- Their only way into the software world is by analogy”
Blockchain in Five Key Fund Areas
GECKO Governance believe that the funds regulation and compliance areas requires a solution that is scaleable, adaptable, secure and transparent. With Blockchain, these requirements can be easily achieved. At GECKO we are currently expanding our fund governance solution to integrate Blockchain technology, specifically focused around the following initial fund processes:-
- Investor Onboarding AML/KYC process
- Operational Due Diligence
- Fund Governance
- Compliance Management
- New Fund Launches
Within the AML/KYC process, areas around the Subscription and Redemption process for mutual and hedge funds such as the Customer Identification Program Customer due diligence, Enhanced due diligence, and Account opening can all be managed in a secure, immutable Blockchain.
For Operational Due Diligence (ODD), particularly for hedge funds, Blockchain can manage the end to end due diligence process including updating and completing key questionnaires, periodically operational and investment reviews and a swathe of operational risks, including regulatory compliance, information technology assessments and administrator, valuation and service provider review.
Fund Governance is key to GECKO Governance’s blockchain solution, which will monitor the supervision of fund delegates and their behaviour, as well as providing the regulators with an audit trail of all CP 86 duties and oversight that have been completed.
In the area of Compliance Management, Blockchain will be beneficial to the fund compliance process specifically around policies, procedures, documentation, internal auditing, third party audits, security controls and technological enforcement required for the management of investment fund compliance.
GECKO Governance provides the first Blockchain solution for new fund launches and asset onboarding. We manage the complex process of launching new funds using our Blockchain functionality, including the end to end coordination and project management of new client onboarding, fund launches and asset transitions across multiple internal and external entities – including Regulators, Auditors, Lawyers and Service Providers.
For further information on the applications of Blockchain technologies to the funds industry see www.geckogovernance.com